Consolidation is the process that transforms individual financial statements for a group of entities into a single financial statement. In the United States, this process creates a consolidated financial statement that is based on U.S. Generally Accepted Accounting Principles (GAAP), the standard that applies to external, or statutory, financial reporting. To create a consolidated financial report, companies that own all or part of other companies create financial reports to meet both internal and external reporting requirements.
In accordance with Financial Accounting Standards Board (FASB) Statement No. 52, if a foreign entity's financial records are not maintained in the functional currency of a parent company, then the financial records must be translated. For example, a U.S. parent company may have a fully-owned foreign subsidiary located in the United Kingdom. The British subsidiary may have a subsidiary in Germany. The German entity's financial records are maintained in euros (), their functional currency, such that all transactions ultimately have to balance out and be reported legally in euros. However, the functional currencies of British subsidiary and the U.S. parent company are British pounds (£) and U.S. dollars (USD), respectively. Thus, the German branch's financial records kept in euros must be translated into British pounds because the British subsidiary is the immediate parent of the German subsidiary. The value of the German financial are then translated from British pounds to U.S. dollars, which is the presentation currency of the financials at the U.S. parent company level.
This is typically accomplished by exporting summarized financial data from different subsidiaries into an external tool such as a spread sheet application (e.g., Microsoft Excel) or financial analysis and reporting software (e.g., Microsoft FRx). In external consolidation, which typically occurs at the end of the month, financial data from different entities is entered and accounting rules are applied outside of the system to convert to other currencies based on the appropriate exchange rates. This is done for all of the different subsidiaries resulting in a consolidated set of financial data. However, such externally consolidated financial data cannot be performed “on-the-fly” or accessed in real time by higher level entities in the corporate structure. This can be a disadvantage as the ability to produce real-time or pseudo real-time consolidated financial data provides decision makers with the most current information regarding the operations of subsidiaries.
Therefore, what is needed is a system and method for consolidating multiple rate currencies in real time to produce current financial information for subsidiaries of a parent company that may be used to evaluate the operation of a company and its related organizations.